As this video explains, Federal laws put into effect in 2014 and supervised by the Consumer Financial Protection Bureau define lending practices and loan terms for a new category called “Qualified Mortgages.”

They provide stable loan features for consumers and improve legal protection for lenders who follow the guidelines.

These guidelines require lenders to assess each borrower’s ability to repay their mortgage loan.

As of 2014, guidelines require that a borrower’s monthly DEBT – including mortgage – be no higher than 43% of their monthly gross INCOME

The laws also define unacceptable loan terms:

interest-only loans

terms over 30 years

negative-amortization loans that increase principal over time

most balloon loans

do not meet the Qualified Mortgage guidelines.

The laws aim to provide consumers with objective guidance about reasonable debt from the CFPB and in return, to grant lenders who follow that guidance with higher levels of protection from lawsuits.